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Old 21 May 2020, 19:54 (Ref:3977605)   #1
mogwai
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McLaren emergency funding hits a snag

Apologies for the spacing on this. It's from a couple different sources.

For those who are interested in this type of thing, originally the plan was for McLaren to receive additional emergency funding. Below is the text of the BBG article earlier this month...further down is the snag...guess the assets are already pledged somewhere else.

If McLaren is facing these issues with what one perceives as the "moral" backstop of a Sovereign Fund (Mumtalakat), then one wonders how William's is holding on.

https://www.bloomberg.com/news/artic...in-new-funding
McLaren Group Ltd., the supercar maker and racing team owner, is seeking about 300 million pounds ($374 million) in fresh funding just months after completing a similarly-sized capital raise, people familiar with the matter said.The British company is working with an adviser as it examines ways to strengthen its finances, according to the people, who asked not to be identified because the information is private.

McLaren said in March that its existing shareholders had put in 300 million pounds of new equity. It also announced it had appointed Paul Walsh, the former chief executive officer of liquor giant Diageo Plc, as its executive chairman.

The company, controlled by sovereign wealth fund Bahrain Mumtalakat Holding Co., has been hit by the coronavirus pandemic which has delayed the Formula 1 racing series and forced it to halt automotive production. Automakers from Daimler AG to Renault SA have cut or scrapped guidance in recent weeks because of lockdowns tied to Covid-19.

Ferrari NV also lowered its earnings guidance for 2020 this week, saying it has seen several order cancellations and expected the reduced number of Formula 1 races to cut into its sponsorship income. U.K. luxury carmaker Aston Martin Lagonda Global Holdings Plc, which has struggled with cash flow, earlier this year raised 536 million pounds from a group led by billionaire Lawrence Stroll. Even after bringing in new investors, the coronavirus crisis has added a level of difficulty to the turnaround put in place with Stroll’s arrival.

McLaren’s 370 million pounds of secured notes due 2022 fell almost 6 pence on the pound Wednesday to a record low of 60.2 pence, according to Bloomberg CBBT prices. The company’s deliberations are at an early stage, and the exact structure of the potential fundraising hasn’t been finalized, the people said.

“Like other businesses we have been severely affected by the current pandemic,” a representative for McLaren said. “We are in continued dialogue with our banks and investors to help navigate these short-term business interruptions.”
McLaren is “looking at a severe liquidity crunch” which will be most acute in the middle of the year, chief financial officer Paul Buddin said on a conference call last month. It is working with its shareholders, relationship banks and advisers to pursue “a number of credible options” for funding, he said.

The company’s ability to sell cars during the second quarter has been severely impacted by the coronavirus outbreak, according to Buddin. While McLaren said that business forecasts are changing daily due to the uncertainty, it’s cutting investments and delaying the introduction of a vehicle based on its new platform to preserve cash.

But that effort has now hit a snag with some selected bondholders saying the assets area already pledged!

From an article on the terminal from earlier today.
"A group of McLaren Group Ltd. bondholders wants to block plans by the supercar maker to raise emergency funds by mortgaging its headquarters and historic car collection, according to people familiar with the matter.

Law firm Paul Hastings, acting on behalf of the creditors, sent a letter to the management of the company on Wednesday stating that the site and the classic cars are already pledged as collateral on $700 million of bonds sold in 2017, the people said, asking not to be named discussing private information.

“The notes benefit from first-ranking security over substantially all of the assets of the issuers and the guarantors, presumably including the heritage cars and the Woking headquarters,” Caitlin Carey, an analyst at credit research firm Covenant Review, said in a note, referring to the town in southern England where McLaren is based.

Here's the real crux of the matter and one wonders how much time they have to sort this out;
"The proposal to transfer the real estate and the historic car collection as a guarantee to new lenders would reduce the security package for existing bondholders and lower their potential recovery in case of insolvency or liquidation, the people said.

Bond holders don't take lightly to having their obligations suddenly put lower in the capital structure so the next few weeks are going to be crunch time it seems. Is it possible we could see McLaren fold before Williams???

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Old 21 May 2020, 21:19 (Ref:3977617)   #2
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Thanks for this. Not looking good for McLaren. If they are receiving additional emergency budget then they have to plan how they go forward. And Williams need a good year if they are to get anywhere in the future.

McLaren have been lucky to have had partners help them, but if they choose not to help them anymore, they would probably need a buyout to keep them going I’m sorry to say. Let’s hope they can find a way to continue

I can see most of the top teams staying, but I wonder now if the Aston Martin deal will still go ahead or if Racing Point will have to continue without it

I just hope McLaren have enough for them to stay. It’s not looking good, but miracles can happen, so we have to keep our fingers crossed, until that proverbial godmother turns up. If it is needed that is
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Old 22 May 2020, 07:05 (Ref:3977647)   #3
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fresh funding = throwing money down a big black hole.
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Old 22 May 2020, 07:11 (Ref:3977650)   #4
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Indeed and with Danny Ric's salary expectations there could be problems ahead.
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Old 22 May 2020, 07:21 (Ref:3977652)   #5
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I gave up trying to understand McLaren’s funding years ago. Not much seems to make sense.
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Old 22 May 2020, 08:04 (Ref:3977656)   #6
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Jeez so that's £0.6 BILLION just to have a couple of cars racing round in circles 20 times per year?

The world's gone mad.

(OK I realise they have a car manufacturer to support as well, but that's meant to be a self-funding subsidiary.)

Madness. Utter madness.

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Old 22 May 2020, 08:17 (Ref:3977657)   #7
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Not so much madness as unsustainable.
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Old 22 May 2020, 08:52 (Ref:3977663)   #8
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Indeed and with Danny Ric's salary expectations there could be problems ahead.
The F1 division was being funded seperately when the brown stuff hit the fan a few years ago so why should it be treated differently now? I suspect Zac knows exactly what his financial position is right now.
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Old 22 May 2020, 14:28 (Ref:3977704)   #9
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have to say i really like the format and links you provided in your post mogwai! i very much appreciate anytime us regular folk get to peer into the content available through a bloomberg terminal subscription!

cant imagine we will see these stories on the motorsports network!

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Bond holders don't take lightly to having their obligations suddenly put lower in the capital structure so the next few weeks are going to be crunch time it seems. Is it possible we could see McLaren fold before Williams???
no i can t imagine they like that at all.

obviously i dont know the inner details, but if they went ahead and tried to secure loans with already pledged assets and without the bondholders having prior knowledge, then i would say it looks both desperate and perhaps even a little shady?
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Old 23 May 2020, 10:29 (Ref:3977858)   #10
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Jeez so that's £0.6 BILLION just to have a couple of cars racing round in circles 20 times per year?
No, it's to prop-up the McLaren supercar business which requires lots of capital for R+D and the like.



McLaren buying experiences are reportedly very poor, as are the resale values, as well as the reliability of the vehicles (even by Supercar standards) -- McLaren needs to address this if they want their vehicles to be seen as a true equal to a Ferrari vehicle:
https://www.youtube.com/watch?v=H7qpUqwLS9o
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Old 23 May 2020, 12:28 (Ref:3977868)   #11
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Wow, that's even worse! £0.6 billion to prop up a specialist car...what a mess it all is.

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Old 23 May 2020, 12:31 (Ref:3977869)   #12
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It's well worth watching the part 2 video to that McLaren tale. He makes some excellent points in there which back up some of the things in the first video.

Having spent a good chunk of last year as the passenger in a 720S, I'd definitely have one if someone gave it to me
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Old 23 May 2020, 18:16 (Ref:3977925)   #13
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One thing that will emerge from Covid-19 is how ludicrously over leveraged some firms are. I generalising now, but IMO there has been to much focus on shareholder returns over cash building which means great returns for shareholders but weak resilience for the business.
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Old 23 May 2020, 20:12 (Ref:3977939)   #14
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One thing that will emerge from Covid-19 is how ludicrously over leveraged some firms are.
Yes.

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Old 23 May 2020, 23:16 (Ref:3977965)   #15
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One thing that will emerge from Covid-19 is how ludicrously over leveraged some firms are. I generalising now, but IMO there has been to much focus on shareholder returns over cash building which means great returns for shareholders but weak resilience for the business.
I'm sure others can correct me on this, but I have long (mis?) understood the role of a director of a company in which the public have shares is to protect shareholder value above all else - in UK law, at least. This drives the companies towards dividends and bonus culture rather than storing cash, which ultimately weakens them in moments of stress.

(Apple notwithstanding, of course)
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Old 23 May 2020, 23:36 (Ref:3977970)   #16
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Really this is a time for F1 to consider cutting costs. The last thing we need is for any team to pull out. And to lose a name like McLaren would not be great either.

I have a lot of faith in Zac Brown, but some things are even beyond his control. I wouldn’t be surprised to see at least a partial buying out of the team come the end of the season.
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Old 24 May 2020, 07:53 (Ref:3978008)   #17
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If what V8 Fireworks says above is true, it's not the F1 team as much as the car maker that's the problem.

But yes, your comment ties in with mine. Spending the cost of a couple of hospitals every year just so 2 lucky guys can race around the world is madness. It cannot be sustained, and soon "the public" will see through it.

The problem is, as I hinted on another thread, that scaling back the teams will cause massive unemployment in the F1 engineering market and there are precious few jobs in the real world for them to go to thanks to C19. Cutting costs are never simple.

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Old 24 May 2020, 11:37 (Ref:3978043)   #18
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If what V8 Fireworks says above is true, it's not the F1 team as much as the car maker that's the problem.

But yes, your comment ties in with mine. Spending the cost of a couple of hospitals every year just so 2 lucky guys can race around the world is madness. It cannot be sustained, and soon "the public" will see through it.

The problem is, as I hinted on another thread, that scaling back the teams will cause massive unemployment in the F1 engineering market and there are precious few jobs in the real world for them to go to thanks to C19. Cutting costs are never simple.

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By professional sport standards the drivers don't get large renumeration at all. Try football, baseball etc, those guys do get paid many times what a driver gets.
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Old 24 May 2020, 11:41 (Ref:3978047)   #19
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They still get paid quite a bit, they get enough to be set for life pretty much. Although as you say, if you compare it to say football where transfer money just seems to keep rising every few seasons, it’s not quite as bad
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Old 24 May 2020, 14:26 (Ref:3978074)   #20
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By professional sport standards the drivers don't get large renumeration at all. Try football, baseball etc, those guys do get paid many times what a driver gets.
I didn't mention the drivers in the context of ££ at all. Just running a factory of 1000 people is eye-wateringly expensive. Add in the "expense no object" ethos of engineering, the world travel with all that kit, and you've got a medium-sized hospital before you even hit the track. Every year. Just to earn your place in the club.
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Old 25 May 2020, 13:12 (Ref:3978209)   #21
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I'm sure others can correct me on this, but I have long (mis?) understood the role of a director of a company in which the public have shares is to protect shareholder value above all else - in UK law, at least. This drives the companies towards dividends and bonus culture rather than storing cash, which ultimately weakens them in moments of stress.

(Apple notwithstanding, of course)

Same in the U.S. It's a standard principal/agent problem but the director is there to see to the best interests of the shareholders, be they large and/or smaller shareholders. This is, imo, the law of unintended consequences of linking executive bonus structure to stock performance. Executives are often (not all btw, but many) concerned with improving stock performance without actually improving company performance. Share buybacks are one such result.
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Old 25 May 2020, 13:16 (Ref:3978211)   #22
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If what V8 Fireworks says above is true, it's not the F1 team as much as the car maker that's the problem.

But yes, your comment ties in with mine. Spending the cost of a couple of hospitals every year just so 2 lucky guys can race around the world is madness. It cannot be sustained, and soon "the public" will see through it.

The problem is, as I hinted on another thread, that scaling back the teams will cause massive unemployment in the F1 engineering market and there are precious few jobs in the real world for them to go to thanks to C19. Cutting costs are never simple.

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I should clarify, the funding issue above is specifically related to McLaren the auto manufacturer, not the F1 team. I'm certain somehow they are considered separate entities though it appears the F1 team has already pledged assets. This makes me think that one or the other (F1 team or Auto Manufacturer) is a special interest entity with separate and segregate assets which have been pledged to fund their operations and, one would expect, their return.
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Old 25 May 2020, 13:22 (Ref:3978212)   #23
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If the F1 team were to be in peril from the financial woes besetting the road car division it would not surprise me to see Zac Brown involved in a management take over. I see him as the same type of person as Toto Wolfe in that regard.
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Old 25 May 2020, 13:39 (Ref:3978213)   #24
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All of this shouldn't come as much of a surprise, and is possibly/probably the reasoning behind Ron Dennis' falling out with his very long time partners when he initiated a potential sale of the holding company which the partners rejected.
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Old 25 May 2020, 23:39 (Ref:3978307)   #25
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Skip to 32 mins in, sums up what the problems are.

In essence they don't know whether they are a volume car maker or an exclusive car maker, their quality control sucks, they have apparently guaranteed high residual market values that make owning the cars relatively affordable, then discounting the cars heavily to sell them thus ruining the high residual projections. How to guarantee a buyer never buys a second McLaren.

I am not clear whether the high residual guarantee to the finance houses generates a further liability to McLaren or if it only nests with the buyer?
If McLaren have guaranteed the residual values with the finance companies, then there is a large liability that McLaren will have to pay out on the cars it has sold.
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